Common queries about Input Service Distributor: FAQs

Under the GST law, who is an Input Service Distributor?

Any business that has several branches located anywhere within the country, and receives bills for common services used by all of its branches, is considered to be an Input Service Distributor or ISD. The input tax credit received during the purchase of common services will be distributed equally among all of the ISD’s branches. 

For example, let’s assume Axl Consultancy Ltd is an ISD that is located in Chennai, and has branches in Hyderabad and Bangalore. The head office in Chennai receives the invoice for software maintenance services used by the other two branches. The input tax credit received for this service will be distributed equally between the Hyderabad and Bangalore offices, and the Chennai office is the Input Service Distributor. 

What is the registration procedure for ISDs?

• Regardless of their annual turnover, all ISDs must be registered under GST.
• Even if an ISD business is already registered as a regular business under GST, it must obtain a separate registration as an ISD. 
• The head office of an ISD business needs to obtain a single GST registration and mention that it is an ISD in serial number 14 of the REG-01 form.
• The branches can have separate GST registration numbers, but their PAN should be the same as the ISD’s. 

When is an ISD not allowed to distribute input tax credit?

An ISD cannot distribute ITC received on the following types of purchase: 

• Capital goods
• Outsourced manufacturers or service providers
• Services for which reverse charge is applicable

In addition to this list, ITC cannot be distributed to offices that have different PANs. 

What conditions should be fulfilled by an ISD in order to be able to distribute ITC?

Input tax credit received for the purchase of common services for business purposes can be distributed to registered persons. The ISD must also meet the following conditions:

• The Input Service Distributor must send ISD invoices to the branch offices in order to distribute input tax credits. The invoice must mention that it is created for distribution purposes only. 
• The input credit must be distributed within the same month in which it was received. The details regarding the input credit distribution must be mentioned in the GSTR-6 form.
• An ISD must separately distribute eligible ITC, or input credit that can be claimed, and ineligible ITC, also known as blocked input credits. 

How does the ISD distribute the credit?

The ISD must distribute the credit on the following basis:

If the service is used by more than one business unit and the ISD is being billed for the service, then the credit must be distributed on a pro-rata basis according to turnover. For example, if an ISD has three business units with turnover of 5 lakhs, 3 lakhs, and 2 lakhs, then the ratio of credit distribution will be 50%, 30%, and 20%, respectively.

What is the procedure for an ISD to file tax?

• The ISD must file each month’s GSTR-6 before the 13th of the following month. For example, the GSTR-6 of January must be filed before the 13th of February. 
• The ISD’s returns must contain information related to all ISD invoices issued. 
• The recipients can view the details of the returns in their GSTR-2A. This information can be included in the recipient’s GSTR-2 in order to receive credits. 
• The ISD is not required to file an annual return. 
• The ISD may reject or accept the details provided on form GSTR-6A on or before the 17th day of the month following the tax period. 

How does the reverse charge mechanism work for ISDs?

ISDs cannot accept invoices that have been taxed based on the reverse charge mechanism. The reason behind this is that the ISD mechanism’s primary aim is to distribute input tax credits, and ISDs are not liable to pay taxes. If an ISD wants to make supplies based on the reverse charge mechanism, then it will have to register separately as a regular taxpayer.

What is the format for issuing an ISD invoice or ISD credit note?

An ISD invoice is issued for distributing ITC, and an ISD credit note is issued for the reduction of credit after the ITC is already distributed. An ISD invoice or credit note must contain the following information: 

• Name, address, and GSTIN of ISD
• Consecutive serial number of 16 characters of fewer, which may include any combination of letters, numbers, and special characters like hyphen and slashes. This combination must be unique for a financial year.
• Date of issue
• Name, address, and GSTIN of the recipient of the credit
• Amount of credit distributed 
• Signature or digital signature of the ISD or authorised representative

If the ISD is an office of a banking or financial company, including a non-banking financial company (NBFC) or insurer, then the following exceptions apply: 

• A tax invoice or any other relevant document can be issued.
• It doesn’t matter whether the document is available in paper or electronically. 
• The document does not need to be serially numbered or contain the address of the recipient of the taxable service. 

Who is eligible to receive credit from an ISD?

ISDs can distribute credit only to business units that share their same PAN.